1. TCS: Still the strongest

TCS: Still the strongest

Good demand traction in all major verticals

Updated: February 3, 2015 1:29 PM

Rating: buy

Demand moderation temporary: We would have been concerned if demand moderation at TCS seen in Q2/Q3 was due to fundamental factors, but it appears to be more macro linked or one-off in nature and restricted to small segments like energy and Diligenta business (3% of revenue).

The management indicated that all other segments, especially the US and Latam/India, are seeing good demand traction, with even challenged segments like retail likely to improve going forward. This reinforces our belief that nothing has changed fundamentally at TCS and it remains well positioned to benefit from both cost efficiency and discretionary demand. We expect TCS to record USD revenue CAGR (compound annual growth rate) of 14% and EPS (earnings per share) CAGR of 15% over FY15-17F; we retain Buy. HCLT/CTSH are our top buys in the sector.

TCS, TCS rating, UK, Europe

Progressively improving demand traction: TCS reported constant currency (CC) revenue growth of 2.5% quarter-on-quarter and Ebit (earnings before interest and taxes) margins were up 20 basis points bps 27%, in line with our expectations. Weak spots in the result were: (i) weakness in the UK, and retail, energy and utilities segments; and (ii) headcount addition of 1.6% q-o-q (with limited scope on utilisations). However, management indications of: (i) US, Latam and India likely being better than last year, (ii) Europe growth of 6.6% q-o-q in CC terms and UK (ex of Diligenta) seeing better growth going forward, and (iii) overall positive commentary on order book, were  heartening.

TCS, TCS rating, UK, Europe

TP rises to R2,800 on roll-forward: We build 100 bp cross currency impacts in Q4 and reset our USD-INR assumption to 62 (vs. 61 earlier) and look for USD revenue CAGR of 14%, stable Ebit margins at ~27% and EPS CAGR of 15% over FY15-17F (forecast). Our TP (target price) rises to R2,800 (vs. R2,760) on roll-forward and is based on 20x one-year forward EPS (up to Dec-16) of R140.


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  1. T
    Jan 28, 2015 at 10:53 pm
    I am a TCSer and I can tell you that the TCS CEO does not have any Ethics are Morals. All the fancy numbers that he showcases are heavily manited to woo the investors. You may have recently seen the huge backlash TCS received because of unethically and indiscriminately sacking 25,000 senior employees and taking trainees in their place to quickly save cost. Due to such unethical and eccentric decisions many customers are now cancelling their contracts with TCS. The LIER CEO will hide all the truths from the outside world and will keep projecting rosy pictures But you can mark my words, the day is not far when TCS will collapse like a pack of cards.

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